Despite stocks plummeting in March when the COVID-19 pandemic was accelerating, most large public plans with heavy exposures to U.S. equities experienced single-digit returns for the fiscal year ended June 30, thanks to markets rebounding in April.
"It looked like we were on pace for double-digit losses. For many public pension systems, given their underfunded statuses and negative cash flow, those double-digit losses would have been severe," said Thomas Aaron, a vice president and senior analyst at Moody's Investors Service Inc., New York. "So, a market rebound was very welcome."
Still, returns were largely below assumed rates of return for public plans.
The median one-year return as of June 30 of the 36 plans tracked by Pensions & Investments through Sept. 2 was 3.14%. Public defined benefit plans in the Wilshire Trust Universe Comparison Service posted a median return of 3.2% for the year ended June 30. For large plans with more than $1 billion in assets, the median return was 2.37%.
Only two plans tracked posted assumed rates of return in the typical 6% to 7.5% range for these funds: the $46.6 billion Nevada Public Employees' Retirement System, Carson City, which returned 7.2% for the fiscal year; and the $916 million Merced County (Calif.) Employees' Retirement Association, 6.8%.
Although the median return for large public plans was lower than the previous two years — the median return was 6.5% for fiscal year 2019 and 8.9% the year before, according to P&I data — Mr. Aaron said it could have been far worse had markets not bounced back and stabilized.
"It was a very volatile fiscal year," Mr. Aaron added. "Most systems scored returns in the low single digits, which is still quite positive, and welcome compared to where we were at end of March."